DoubleClick plays smart endgame

Also: IAB online ad numbers the usual laff riot

By

WilliamSpain

CHICAGO (CBS.MW) - He who has the most tools wins.

Although the reality of the online ad market is not quite as battered as the perception, the financial apocalypse is nigh and (no big surprise) DoubleClick
DCLK
looks to be one of the last ones standing.

Considering the pitiful state of competitors like 24/7 Media
TFSM
and Engage
ENGA, +0.00%
it is tempting to call DoubleClick a one-eyed king of the blind. But, its recent warning notwithstanding, there is no ignoring the company's cash position (over $600 million at last count); the inescapable long-term viability of its medium; and, most of all, the intelligent endgame it is currently playing.

For, as other players either narrow their focus or retrench or prepare for oblivion, DoubleClick has been busy shooting the wounded -- using its relatively fat bank account to cherry pick promising technologies at favorable prices.

Since May, the company has bought MessageMedia
MESG
a permission-based direct marketer/junk e-mailer; a media planning system from Adgile Intercactive; and 24/7's Sabela Media unit. It has also reportedly been sniffing around RealMedia.

Then, just last week, it gobbled up the technology assets of L90
LNTY
a win-win deal for both as DoubleClick acquires a high-margin business with little integration cost while L90 rids itself of a money-losing unit and improves its cash position at the same time.

This strategy is "extremely smart," said Andrew Swinand, a vice-president at media buyer Starcom IP's San Francisco office. "If you think about third party ad-serving [DoubleClick's core business], it is a commodity. You increase profitability through analytics."

And, "as opposed to increasing the cost of commodity services, they are boosting revenue through more strategic added-value services so, in the long run, everybody wins."

Analyst David Doft of ABN AMRO also has good things to say about DoubleClick's approach: "It is clear that they are taking advantage of the cash crunch of their competitors and buying up all the assets they want" for a fraction of their development cost.

Although Doft cut his estimates following a DoubleClick's recent warning, he maintains an "add" rating on the stock. With net cash of over $4 a share and other assets, "that's a pretty good supporting value to have."

He figures cash to bottom out at about $3.50 per share before DoubleClick turns positive again so people looking for quick buck had best look elsewhere: "The stock is cheap but that is not good enough. You have to ask yourself 'what's the catalyst?' and there just isn't one in the short-term."

Bottom line: DoubleClick's earnings are going to suck when they release third quarter numbers Thursday but the rest of the news is mostly good and the prospects fairly bright. Apart from an uncertain economy, about the only dark cloud on the horizon is that DoubleClick has consistently been the favorite survival pick of some internet-specialty analysts who, unlike Doft, have rather simplistic notions about the ad business.

But then, even the pinheads who brought us Amazon at $400 can get lucky once in while.

Not buy the numbers

Take a couple of weeks off and they try to slip one by.

On September 24, the Interactive Advertising Bureau rolled out its best guess of online ad spending numbers. According to the trade group, which has taken on an increasingly defensive tone in these releases, the online ad market was worth about $3.8 billion in the first half of this year. If true, that would put the medium in the No. 7 spot, right behind daily newspapers and well ahead of syndicated TV.

But of course it isn't true - and probably not even close. IAB deserves points for sincerity and tenacity but their numbers just can't possibly add up.

Catch this line: "The results reported are the most accurate measurement of online advertising revenues because the data is compiled directly from information supplied by companies selling advertising on the Internet."

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